“Fundamentally, they’re cautiously optimistic that the economy will muddle through the new normal.”
Last night, I attended the Toronto CFA society’s annual forecast dinner, which featured economic and investment predictions from two prominent professionals: Patricia Croft, Chief Economist of RBC Global Asset Management and Robert Doll, Vice-Chair of BlackRock Inc.
The first line of this entry is a pastiche of the various buzzwords and phrases that peppered the keynote addresses and the CFA Society host’s remarks throughout the night.
Over 1,000 analysts, Portfolio Managers and other Bay Street types were in attendance, presumably relieved to have someone else put on the spot for a moment.
The featured speakers were diligent, and laid out reasonable cases for a drawn out economic recovery, coupled with an investment environment where stocks, particularly dividend payers, and those whose prospects are tied to faster growing economies look favourable compared to bonds. Both speakers forecast higher stock markets in the coming year and over the long term, and gradually higher interest rates.
Canada appears to be a relative winner in the future with it’s resources, stable banking system and relatively benign fiscal situation.
World growth will come primarily from emerging economies, while Japan and Europe will lag behind. The U.S. will be a net contributor to world growth, despite the widely-held perception of an anemic U.S. consumer and a “jobless recovery”. Mr. Doll specifically tackled the validity of these negative U.S perceptions. First, he asserted that the US consumer spent only about 3 months hoarding their money, rather than the 2 or 3 years that had been forecast during the depths of the gloom. Next, he argued that a jobless recovery is a feature of the beginning stages of virtually every recovery. Employers who have cut jobs don’t bring them back right away during an upturn. That happens gradually as the recovery takes hold, and is happening now.
In both speaker’s estimation, the prospects for a “double dip” recession are quite low, certainly lower than one might believe after gauging sentiment over the course of this past summer. Rather, a new era of sub par economic growth, with heightened short term volatility has emerged.
Risks to the upside include both government policy mistakes and rising protectionist sentiment. A report this morning claiming that the US House’s Ways and Means Committee are endorsing a Bill to slap duties on goods from countries with “fundamentally undervalued currencies” (i.e. China) suggests that those risks are real, and bear watching.
Nevertheless, the outlook was reasonably positive for the economy in general and the stock markets specifically. Don’t expect a smooth ride; Ms Croft pointed out that market recoveries after 50% drops tend to retest highs and lows for several years before moving to a new bullish stage.